Delaware Transactional Law Updates

Document: In re Checkfree Corp. S’holdrs Litig., C.A. No. 3193-CC, Chandler, C. (Del. Ch. Nov. 1, 2007)

The Court denied a motion requesting that a merger preliminarily enjoined based on disclosure violations, where the plaintiffs failed to meet the burden required to show that the disclosures omitted material information.

Document: Robbins Hose Co. v. Baker, C.A. No. 2247-VCP, Parsons, V. C. (Del. Ch. Oct. 31, 2007)

The Court granted a motion of judgment on the pleadings, enjoining the order of an “Appeal Broad” of a non-stock fire company that reversed the decision of a “Trial Board” to expel a member of the fire company, where the Appeal Board conducted a plenary review of the facts, rather than reviewing the Trial Board’s findings for a “gross error of law”.  The Court, however, refused to affirm the Trial Board’s findings, instead holding that the member was entitled to another appeal of the Trial Board’s review.

Document: Forsythe v. ESC Fund Mgmt. Co. (U.S.), Inc., C.A. No. 1091-VCL, Lamb, V. C. (Del. Ch. Oct. 31, 2007)

The Court denied a motion for reargument where, although the Court misunderstood facts regarding the contents of certain notices, the Court found the misunderstanding was immaterial.

Document: In re: Coca-Cola Enter., Inc. S’holders Litig., Consol. C.A. No. 1927-CC, Chandler, C. (Del. Ch. Oct. 17, 2007)

The Court dismissed, as time barred, fiduciary duty claims based on a contract that a former parent company made with its public spin-off in 1986, where the wrongs alleged were manifestations of that contract and where there existed no facts that gave rise to equitable tolling.

Document: Orner v. Country Grove Investment Group, LLC, C.A. No. 2245-VCS, Strine, V.C. (Del. Ch. Oct. 12, 2007)

Interpreting the Federal Arbitration Act, the Court confirmed an arbitration award, where the arbitrator proceeded with the arbitration notwithstanding the lack of a final decision as to whether the dispute was able to be arbitrated  under the relevant contracts.  The Court found that the dispute was able to be arbitrated and that the decision of the arbitrator to enforce his scheduling order absent a court order to stay the arbitration was not an abuse of the arbitrator’s discretion.

Documents: Forsythe v. ESC Fund Mgmt. Co. (U.S.), Inc., C.A. No. 1091-VCL, Lamb, V.C. (Del. Ch. Oct. 9, 2007)

The Court denied defendants’ motion to dismiss claims for failure to satisfy the demand requirement in a derivative suit relating to a limited partnership, notwithstanding that the general partner was not alleged to have knowledge of the misconduct by parties to whom the general partner delegated the management of the partnership (the “Delegatees”), where the partnership agreement set forth that the general partner had a duty to oversee the Delegatees.  The Court also found that plaintiffs’ had stated a claim against the bank that created the limited partnership for aiding and abetting breaches of fiduciary duties by the Delegatees, who were wholly owned by the bank, even though the bank itself was not a fiduciary of the limited partnership.

Document: Ginsburg v. Philadelphia Stock Exch., Inc., C.A. No. 2202-CC, Chandler, C. (Del. Ch. Oct. 9, 2007)

The Court granted a motion made by objectors to a class action settlement, granting the objectors access, subject to a modified confidentiality order, to materials produced through discovery, notwithstanding that the objectors’ counsel were pursuing litigation against the defendants in other courts.

Document: Louisiana Mun. Police Employees’ Retirement Sys. v. Countrywide Fin. Corp., C.A. No. 2608-VCN, Noble, V.C. (Del. Ch. Oct. 2, 2007)

The Court granted the plaintiffs’ request to inspect the books and records of the defendant corporation, pursuant to 8 Del. C. § 220, where the plaintiff had offered “some evidence of mismanagement” by presenting a statistical analysis showing defendants stock option returns were unlikely in the absence of backdating.

Document: Baypo Ltd. P’ship v. Tech. JV, LP, C.A. No. 2693-VCL, Lamb, V.C. (Del. Ch. Oct. 2, 2007)

The Court stayed claims requesting the reformation of contracts in favor of arbitration, where the parties expressed the clear intention that the issue of the ability to arbitrate claims relating to the contracts would be submitted to arbitration by incorporating the rules of the American Arbitration Association, notwithstanding that the agreements permitted access to courts for injunctive relief while the arbitration was pending.

Documents: In re: Career Educ. Corp. Deriv. Litig., Consol. C.A. No. 1398-VCP, Parsons, V.C. (Del. Ch. Sept. 28, 2007)

The Court dismissed a consolidated derivative complaint for failure to allege demand refusal, where the plaintiffs were precluded from litigating the issue of demand excusal by the previous decision of the U.S. District Court for the Northern District of Illinois, but found that the conclusion of the federal litigation mooted the defendants’ motion for dismissal on the doctrine of forum non conveniens.

Documents: Twin Bridges Limited P’ship v. Draper, C.A. No. 2351-VCP, Parsons, V.C. (Del. Ch. Sept. 14, 2007)

The Court granted summary judgment to a general partner of a partnership regarding claims requesting the declaration of the validity of an amendment to the limited partnership agreement and a merger.  The amendment provided that a merger could be effected with two-thirds of the partnership interests, rather than the unanimous consent required by statute.  Contrary to plaintiff’s contentions, the Court treated both the amendment and the subsequent merger as an integrated transaction, but found that the transaction was valid under the amended partnership agreement and the Delaware Revised Uniform Limited Partnership Act, 6 Del. C. § 17-101, et seq.  The Court, however, refused to dismiss the Defendant’s counter-claims relating to breach of fiduciary duties by the Plaintiff general partner in connection with the transaction.

Document: In re Tyson Foods, Inc. Consol. S’holder Litig., C.A. No. 1106-CC, Chandler, C. (Del. Ch. Sept. 11, 2007)

The Court granted the plaintiffs’ motion to compel production of documents regarding related party transactions where such documents were “relevant to the subject matter of the litigation”; but denied a request for supplemental interrogatory responses, where the Court found that the interrogatories were too broad, and that the information could be obtained through depositions.

Document: B.F. Rich & Co., Inc. v. Gray, No. 617, 2006, Jacobs, J. (Del. Sept. 11, 2007)

The Delaware Supreme Court reversed the Court of Chancery’s decision, in the appeal of a judicial determination that corporate directors were validly elected, finding that the Court of Chancery committed a reversible error when it determined that, under Connecticut law, a parent who had voted minor children’s shares used children’s property such that the appointment of a guardian was required, where the parent was not the guardian of the children’s estate.

Document: Conrad v. Blank, C.A. No. 2611-VCL, Lamb, V.C. (Del. Ch. Sept. 7, 2007)

The Court, on a motion to dismiss derivative claims based on stock option backdating, held that the plaintiffs had adequately alleged demand futility where there was a potential for liability on the part of directors who received options and on the part of directors who were on the compensation committee, but dismissed claims regarding wrongs alleged to have occurred before the plaintiff stockholder purchased her stock in the corporation.

Document: Meltzer v. CNET Networks, Inc., C.A. No. 3023-CC, Chandler, C. (Del. Ch. Sept. 6, 2007)

The Court granted the defendant corporation’s motion to produce the solicitation letter from plaintiff’s counsel to the plaintiff in a books and records request pursuant to 8 Del. C. § 220, where the solicitation letter was relevant to the proper purpose of the books and records request.

Document: LaPoint v. AmerisourceBergen Corp., C.A. No. 327-CC (Del. Ch. Sept. 4, 2007)

The Court awarded nominal damages to the plaintiff merged corporation relating to breaches of a provision of a merger agreement requiring the defendant acquiring corporation to promote the plaintiff’s product, and $21 million in damages relating to “earnout” payments that resulted from the defendant’s miscalculation of the plaintiff’s EBITDA.

Document: Mahani v. EDIX Media Group, Inc., No. 91, 2007, Steele, C.J. (Del. Sept. 4, 2007)

The Delaware Supreme Court affirmed the decision of the Court of Chancery granting full attorneys’ fees based on a fee shifting provision in a confidentiality and non-competition agreement, notwithstanding the limited success that the plaintiff achieved at trial, where the defendant was uncooperative throughout the litigation.

Document: Franklin Balance Sheet Investment Fund v. Crowley, C.A. No. 888-VCP, Parsons, V.C. (Del. Ch. Aug 30, 2007)

The Court awarded $4.2 million in attorneys’ fees to the plaintiffs’ counsel in a derivative action relating to fiduciary duty and waste claims where it found that the litigation was a cause of the increased stockholder value resulting from a going-private transaction.

Document: The Follieri Group, LLC v. Follieri/Yucaipa Investments, LLC, C.A. No. 3015-VCL, Lamb, V.C. (Del. Ch. Aug 23, 2007)

The Court denied a motion to intervene made by a creditor of a Delaware limited liability company (the “Company”) which was seeking judicial dissolution pursuant to 6 Del. C. § 18-802, where the creditor had no interest in whether the Company should be dissolved because they would be paid in the winding up of the Company.

Document: Fleischman v. Huang, C.A. No. 2497-CC, Chandler, C. (Del. Ch. Aug. 22, 2007)

The Court refused to certify an interlocutory appeal of its discovery order requiring the defendant company to produce Audit Committee reports which support its publicly disclosed findings that there was no intentional misconduct by defendant officers or directors relating to multiple instances of stock option backdating.